0000912057-01-535381.txt : 20011019 0000912057-01-535381.hdr.sgml : 20011019 ACCESSION NUMBER: 0000912057-01-535381 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010901 FILED AS OF DATE: 20011015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL MULTIFOODS CORP CENTRAL INDEX KEY: 0000051410 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 410871880 STATE OF INCORPORATION: DE FISCAL YEAR END: 0303 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06699 FILM NUMBER: 1758786 BUSINESS ADDRESS: STREET 1: 200 EAST LAKE STREET CITY: WAYZATA STATE: MN ZIP: 55391 BUSINESS PHONE: 6123403300 MAIL ADDRESS: STREET 1: 200 EAST LAKE STREET CITY: WAYZATA STATE: MN ZIP: 55391 FORMER COMPANY: FORMER CONFORMED NAME: INTERNATIONAL MILLING CO INC DATE OF NAME CHANGE: 19700217 10-Q 1 a2061006z10-q.txt 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 1, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _________ Commission File Number 1-6699 INTERNATIONAL MULTIFOODS CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 41-0871880 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 110 CHESHIRE LANE, SUITE 300, MINNETONKA, MINNESOTA 55305 (Address of principal executive offices) (Zip Code) (952) 594-3300 (Registrant's telephone number, including area code) (NOT APPLICABLE) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the registrant's Common Stock, par value $.10 per share, as of October 5, 2001 was 18,844,303. PART I. FINANCIAL INFORMATION INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Earnings (unaudited) (in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED --------------------- -------------------------- Sept. 1, Aug. 26, Sept. 1, Aug. 26, 2001 2000 2001 2000 ------------------------------------------------------------------------------- Net sales $ 684,889 $ 585,350 $ 1,350,981 $ 1,195,610 Cost of materials and production (590,418) (496,802) (1,164,843) (1,018,886) Delivery and distribution (50,906) (43,524) (100,358) (87,030) ------------------------------------------------------------------------------- Gross profit 43,565 45,024 85,780 89,694 Selling, general and administrative (34,919) (33,240) (70,041) (66,752) Unusual items (344) 5,275 (344) 5,275 ------------------------------------------------------------------------------- Operating earnings 8,302 17,059 15,395 28,217 Interest, net (3,578) (3,301) (7,155) (6,516) Other income (expense), net (218) (300) (369) (582) ------------------------------------------------------------------------------- Earnings before income taxes 4,506 13,458 7,871 21,119 Income taxes (1,712) (8,179) (2,991) (11,090) ------------------------------------------------------------------------------- Net earnings $ 2,794 $ 5,279 $ 4,880 $ 10,029 =============================================================================== Earnings per share: Basic $ .15 $ .28 $ .26 $ .54 Diluted .15 .28 .26 .53 ------------------------------------------------------------------------------- Average shares of common stock outstanding: Basic 18,816 18,740 18,789 18,738 Diluted 19,061 18,884 19,017 18,821 ------------------------------------------------------------------------------- Dividends per share of common stock $ - $ .20 $ - $ .40 -------------------------------------------------------------------------------
See accompanying notes to consolidated condensed financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Consolidated Condensed Balance Sheets (in thousands)
CONDENSED FROM AUDITED FINANCIAL (UNAUDITED) STATEMENTS SEPT. 1, MARCH 3, 2001 2001 ------------------------------------------------------------------------ ASSETS Current assets: Cash and cash equivalents $ 11,157 $ 10,247 Trade accounts receivable, net 150,436 131,780 Inventories 207,947 185,207 Other current assets 61,948 51,083 ------------------------------------------------------------------------ Total current assets 431,488 378,317 Property, plant and equipment, net 208,544 206,160 Goodwill, net 80,627 81,919 Other assets 100,171 98,229 ------------------------------------------------------------------------ Total assets $820,830 $764,625 ======================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $102,472 $ 39,542 Current portion of long-term debt - 1,000 Accounts payable 205,724 216,050 Other current liabilities 39,683 42,288 ------------------------------------------------------------------------ Total current liabilities 347,879 298,880 Long-term debt 145,462 145,420 Employee benefits and other liabilities 65,214 64,343 ------------------------------------------------------------------------ Total liabilities 558,555 508,643 ------------------------------------------------------------------------ Shareholders' equity: Common stock 2,184 2,184 Accumulated other comprehensive loss (17,830) (17,670) Other shareholders' equity 277,921 271,468 ------------------------------------------------------------------------ Total shareholders' equity 262,275 255,982 ------------------------------------------------------------------------ Commitments and contingencies ------------------------------------------------------------------------ Total liabilities and shareholders' equity $820,830 $764,625 ========================================================================
See accompanying notes to consolidated condensed financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Consolidated Condensed Statements of Cash Flows (unaudited) (in thousands)
SIX MONTHS ENDED --------------------- Sept. 1, Aug. 26, 2001 2000 ------------------------------------------------------------------------- Cash flows from operations: Net earnings $ 4,880 $ 10,029 Adjustments to reconcile net earnings to cash used for operations: Depreciation and amortization 12,974 12,431 Deferred income tax expense 1,133 2,419 Increase in prepaid pension asset (6,878) (7,282) Unusual items - (5,275) Provision for losses on receivables 1,192 902 Changes in working capital: Accounts receivable (19,850) (8,939) Inventories (22,751) (16,572) Other current assets (12,267) (6,104) Accounts payable (10,278) 11,353 Other current liabilities (2,598) 1,821 Other, net 4,465 38 -------------------------------------------------------------------------- Cash used for continuing operations (49,978) (5,179) Cash provided by discontinued operations - 1,418 ------------------------------------------------------------------------- Cash used for operations (49,978) (3,761) ------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (13,473) (16,628) Proceeds from property disposals 89 12,203 Payment received on note receivable 1,422 948 ------------------------------------------------------------------------- Cash used for investing activities (11,962) (3,477) ------------------------------------------------------------------------- Cash flows from financing activities: Net increase in notes payable 62,859 21,724 Net decrease in long-term debt (1,000) (10,000) Dividends paid - (7,479) Proceeds from issuance of common stock 1,000 - Purchase of treasury stock (1) - Other, net (2) (17) ------------------------------------------------------------------------- Cash provided by financing activities 62,856 4,228 ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents (6) (7) ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 910 (3,017) Cash and cash equivalents at beginning of period 10,247 11,224 ------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 11,157 $ 8,207 =========================================================================
See accompanying notes to consolidated condensed financial statements. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Notes to Consolidated Condensed Financial Statements (unaudited) (1) In the Company's opinion, the accompanying unaudited consolidated condensed financial statements contained in this report reflect all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the consolidated condensed financial statements) necessary to present fairly its financial position, results of its operations and cash flows for the interim periods presented. These statements are condensed and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended March 3, 2001. The results of operations for the three and six months ended September 1, 2001, are not necessarily indicative of the results to be expected for the full year. (2) PENDING ACQUISITION - On February 4, 2001, the Company entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' Robin Hood business for approximately $304.6 million in cash. The assets being acquired include certain equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business, and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including provisional consent by the Federal Trade Commission (FTC) of the acquisition and completion of the merger of General Mills and Pillsbury. The FTC continues to review the proposed General Mills/Pillsbury merger and the Company's pending acquisition. (3) ACCOUNTING PRONOUNCEMENTS STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" The Company adopted Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities", as amended, effective March 4, 2001. SFAS 133 requires that companies record derivative instruments on the consolidated balance sheet at their fair value. Changes in fair value will be recorded each period in earnings or other comprehensive income (OCI), depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in OCI will be reclassified as earnings in the period in which earnings are affected by the hedged item. The impact of this change resulted in a pre-tax charge of approximately $1 million to OCI and an increase to liabilities of approximately $1 million. The balance in OCI will be reclassified to earnings over the life of the derivative instruments, which primarily have maturity terms of one year or less. The Company is exposed to market risks resulting from changes in foreign currency exchange rates, interest rates and commodity prices. Changes in these factors could adversely affect the Company's results of operations and financial position. To minimize these risks, the Company utilizes derivative financial instruments, such as currency forward contracts, interest rate swaps and commodity futures contracts. The Company uses derivative financial instruments as risk management tools and not for speculative or trading purposes. For derivative instruments that are accounted for as hedges pursuant to SFAS 133, the Company formally documents the hedge at inception. The formal documentation includes identification of the hedging instrument, the hedged item, nature of the risk being hedged and how the hedging instrument's effectiveness will be assessed. Foreign currency forward contracts The Company's Canadian operations use foreign currency forward contracts to minimize the exposure to foreign currency fluctuations as a result of U.S. dollar-denominated sales. These contracts are accounted for as foreign currency cash flow hedges of forecasted transactions. To qualify for hedge accounting treatment, these transactions are specifically identified in terms of the customers and the period and the likelihood in which the sales and subsequent collections are expected to occur. The time value component of the foreign currency forward contracts is deemed ineffective, and is recorded in earnings. The unrealized gain (loss) due to the movements in the spot exchange rates, which represents the effective portion of the hedge, is initially recorded as a component of accumulated OCI until the underlying hedged transaction occurs. For the six months ended September 1, 2001, approximately $0.5 million of pre-tax loss was reclassified from OCI to earnings. Interest rate swap The Company has an interest rate swap agreement to manage its exposure to changes in interest rates on a portion of its variable-rate debt. The swap agreement qualifies for cash flow hedge accounting. Approximately $0.2 million was reclassified into interest expense during the six months ended September 1, 2001. There was no ineffectiveness related to the hedge. Other derivative instruments that are not designated as hedges The Company utilizes commodity futures contracts, primarily wheat futures contracts, to reduce the risks associated with price fluctuations on the wheat inventories and other major bakery ingredients, such as flour and soybean oil. The futures contracts are not designated as hedges under SFAS 133. The futures contracts are marked-to-market each month and the gains and losses are recognized in earnings. On an ongoing basis, the Company also enters into foreign currency forward contracts that are not designated as hedges. Changes in the fair value are recognized in earnings. EITF NO. 00-25,"VENDOR INCOME STATEMENT CHARACTERIZATION OF CONSIDERATION TO A RESELLER OF THE VENDOR'S PRODUCTS" In April 2001, the Emerging Issue Task Force (EITF) issued a consensus on EITF No. 00-25, "Vendor Income Statement Characterization of Consideration to a Reseller of the Vendor's Products." EITF No. 00-25 deals with the accounting for consideration paid from a vendor (typically a manufacturer or distributor) to a retailer, including slotting fees, cooperative advertising arrangements, and buy-downs. The guidance in EITF 00-25 generally requires that these incentives be classified as a reduction of sales. The consensus is effective for the Company in the first quarter of fiscal 2003. For fiscal 2001, the Company expects to reclassify approximately $10 million in promotional expenses to a reduction of sales. For fiscal 2002, the projected amount to be reclassified is also approximately $10 million. These costs are currently classified as selling expense. The Company does not expect the adoption of this consensus to have an impact on net earnings. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 141, "BUSINESS COMBINATIONS" In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. In addition, intangible assets acquired are only recognized and accounted for separately from goodwill if they arise from either contractual or other legal rights or are capable of being separated. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142, "GOODWILL AND OTHER INTANGIBLE ASSETS" In July 2001, FASB also issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." Under the provisions of SFAS 142, goodwill and other intangible assets that have indefinite lives will no longer be amortized, but subjected to impairment testing. Goodwill amortization expense in fiscal 2001 was $2.6 million pretax, $1.7 million after tax. SFAS 142 is effective for the Company in the first quarter of fiscal 2003. However, any goodwill and any intangible assets determined to have an indefinite life that are acquired in a business combination completed after June 30, 2001 will not be amortized. The Company is currently evaluating the impact of the standard and may be required to recognize an impairment loss associated with its Multifoods Distribution Group business upon adoption of the standard. As of September 1, 2001, the unamortized goodwill balance of the Multifoods Distribution Group business was $66.2 million. (4) COMPREHENSIVE INCOME - The components of total comprehensive income were as follows:
Three Months Ended Six Months Ended ------------------ ------------------- Sept. 1, Aug. 26, Sept. 1, Aug. 26, (in thousands) 2001 2000 2001 2000 -------------------------------------------------------------------------- Net earnings $2,794 $5,279 $4,880 $10,029 Foreign currency translation adjustment (662) 1,610 83 (2,175) Derivative hedge accounting adjustment 10 - (243) - -------------------------------------------------------------------------- Comprehensive income $2,142 $6,889 $4,720 $ 7,854 ==========================================================================
(5) UNUSUAL ITEMS - In the second quarter of fiscal 2002, the Company recognized an unusual charge of $0.3 million for termination benefits for 57 former hourly employees of its divested U.S. flour milling business. As part of the sale agreement, the Company is obligated to provide, under certain conditions, severance payments for eligible former employees who are involuntarily terminated by the buyer. The liability balance associated with previously recognized unusual items was $1.6 million as of September 1, 2001. This liability balance was primarily related to severance payments associated with the Company's condiments facility consolidation project. The difference from the March 3, 2001 balance of $1.9 million was primarily due to cash payments for employee termination benefits. (6) INTEREST, NET
Three Months Ended Six Months Ended ------------------ ------------------ Sept. 1, Aug. 26, Sept. 1, Aug. 26, (in thousands) 2001 2000 2001 2000 -------------------------------------------------------------------------- Interest expense $4,131 $ 4,468 $8,290 $ 8,675 Capitalized interest (100) (111) (254) (342) Non-operating interest income (453) (1,056) (881) (1,817) -------------------------------------------------------------------------- Interest, net $3,578 $ 3,301 $7,155 $ 6,516 ==========================================================================
Cash payments for interest, net of amounts capitalized, were $8.1 million and $8.7 million for the six months ended September 1, 2001 and August 26, 2000, respectively. (7) INCOME TAXES - Cash payments for income taxes were $5.5 million and $3.1 million for the six months ended September 1, 2001 and August 26, 2000, respectively. (8) SUPPLEMENTAL BALANCE SHEET INFORMATION
Sept. 1, March 3, (IN THOUSANDS) 2001 2001 --------------------------------------------------------------------------- Trade accounts receivable, net: Trade $ 153,742 $ 135,991 Allowance for doubtful accounts (3,306) (4,211) --------------------------------------------------------------------------- Total trade accounts receivable, net $ 150,436 $ 131,780 =========================================================================== Inventories: Raw materials, excluding grain $ 16,694 $ 12,667 Grain 5,876 3,784 Finished and in-process goods 180,668 164,600 Packages and supplies 4,709 4,156 --------------------------------------------------------------------------- Total inventories $ 207,947 $ 185,207 =========================================================================== Property, plant and equipment, net: Land $ 13,082 $ 13,079 Buildings and improvements 111,909 106,470 Machinery and equipment 239,957 234,203 Improvements in progress 13,788 14,756 --------------------------------------------------------------------------- 378,736 368,508 Accumulated depreciation (170,192) (162,348) --------------------------------------------------------------------------- Total property, plant and equipment, net $ 208,544 $ 206,160 =========================================================================== Accumulated other comprehensive loss: Foreign currency translation adjustment $ (15,296) $ (15,379) Minimum pension liability adjustment (2,291) (2,291) Derivative hedge accounting adjustment (243) - --------------------------------------------------------------------------- Total accumulated other comprehensive loss $ (17,830) $ (17,670) ===========================================================================
(9) SEGMENT INFORMATION
Net Operating Unusual Operating (in millions) Sales Costs Items Earnings ---------------------------------------------------------------------------- Three Months Ended Sept. 1, 2001 Multifoods Distribution Group $ 561.6 $ (558.0) $ - $ 3.6 North America Foods 123.3 (116.1) - 7.2 Corporate Expenses - (2.2) (0.3) (2.5) ---------------------------------------------------------------------------- Total $ 684.9 $ (676.3) $(0.3) $ 8.3 ============================================================================ Three Months Ended Aug. 26, 2000 Multifoods Distribution Group $ 468.8 $ (465.0) $(0.3) $ 3.5 North America Foods 116.5 (107.4) - 9.1 Corporate Expenses - (1.2) 5.6 4.4 ---------------------------------------------------------------------------- Total $ 585.3 $ (573.6) $ 5.3 $17.0 ============================================================================ Six Months Ended Sept. 1, 2001 Multifoods Distribution Group $1,113.5 $(1,105.6) $ - $ 7.9 North America Foods 237.5 (224.8) - 12.7 Corporate Expenses - (4.9) (0.3) (5.2) ---------------------------------------------------------------------------- Total $1,351.0 $(1,335.3) $(0.3) $15.4 ============================================================================ Six Months Ended Aug. 26, 2000 Multifoods Distribution Group $ 964.7 $ (955.7) $(0.3) $ 8.7 North America Foods 230.9 (214.3) - 16.6 Corporate Expenses - (2.7) 5.6 2.9 ---------------------------------------------------------------------------- Total $1,195.6 $(1,172.7) $ 5.3 $28.2 ============================================================================
(10) CONTINGENCIES - In fiscal 1998, the Company was notified that approximately $6 million in Company-owned inventory was stolen from a ship in the port of St. Petersburg, Russia. The ship had been chartered by a major customer of the Company's former food-exporting business. The Company believes, based on the facts known to date, that the loss is covered by insurance. However, following submission of a claim for indemnity, the insurance carrier denied the Company's claim for coverage and the Company commenced a lawsuit seeking to obtain coverage under the insurance carrier's policy. If the loss from the theft of product is not covered by insurance, the Company would recognize a material charge to its results of operations. INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Results of Operations and Financial Condition (Unaudited) RESULTS OF OPERATIONS OVERVIEW Net earnings in the second quarter ended September 1, 2001, were $2.8 million, or 15 cents per share, compared with $5.3 million, or 28 cents per share, a year ago. The decline in net earnings was partially driven by lower operating earnings in both our Multifoods Distribution Group and North America Foods business segments. Both business segments were impacted by start-up costs and inefficiencies associated with several large new customer accounts. In addition, net earnings were impacted by costs associated with the consolidation of our two condiments processing facilities and our pending acquisition of assets from Pillsbury and General Mills. Second-quarter 2002 results included a pre-tax unusual charge of $0.3 million, or 1 cent per share, for severance costs related to a previously divested business. Included in last year's second quarter results was a net after tax gain of $0.2 million, or 1 cent per share, from unusual items and tax expense associated with a dividend from our Canadian subsidiary. Unusual items included a gain from the sale of the Company's corporate headquarters building and charges for the closure of two distribution centers. For the six months ended September 1, 2001 net earnings were $4.9 million, or 26 cents per diluted share, compared with $10 million, or 53 cents per diluted share, a year ago. Segment Results Multifoods Distribution Group: Net sales in the second quarter increased 20% to $561.6 million, compared with $468.8 million a year ago. Sales volumes increased approximately 15%. We achieved substantial growth in the sandwich and pizza restaurant customer segments due to the addition of several large new customer accounts and by growth in existing accounts. We also had increased sales to independent vending operators. Operating earnings before unusual items declined 5% to $3.6 million, compared with $3.8 million a year ago. Operating earnings were impacted by a year-over-year increase in labor rates and utility costs, as well as start-up costs and inefficiencies associated with the significant new business accounts. Our labor costs increased as we had to raise pay rates in certain job categories and in certain regions last year because of the tight labor market. In vending distribution, we experienced competitive pricing pressures and lower industry demand in certain regions of the United States due to the weakening economy. Net sales for the six-month period increased 15% to $1,113.5 million, compared with $964.7 million a year ago. Operating earnings before unusual items declined 12% to $7.9 million, compared with $9 million a year ago. Net sales and operating earnings for the six months ended September 1, 2001 were impacted by essentially the same factors as described in the discussion of second quarter results. North America Foods: Net sales in the second quarter increased 6% to $123.3 million, compared with $116.5 million a year ago. The increase was primarily the result of higher sales of flour to commercial and consumer customers in Canada and the addition of a large new customer account in the United States. The increase in net sales was partially offset by unfavorable currency translation and the loss of a large bakery mix customer in the United States, which was purchased by a competitor last year. Operating earnings decreased 21% to $7.2 million, compared with $9.1 million in the second quarter last year. Operating earnings were affected by start-up costs and inefficiencies associated with the large new account in the United States, higher fixed costs resulting from investment in new production lines and costs for our condiments facility consolidation project. In order to support future growth in the United States, we made capital investments in new production lines that increased our manufacturing cost structure. In addition, operating earnings were impacted by higher commodity costs, competitive pricing pressures and unfavorable currency translation. Net sales for the six-month period increased 3% to $237.5 million, compared with $230.9 million a year ago. In addition to the factors described for the second quarter, sales in the six-month period improved on higher sales of commercial bakery mixes in Canada. Operating earnings decreased 23% to $12.7 million, compared with $16.6 million last year. The decline resulted from essentially the same factors as described in the discussion of second quarter results. Corporate: Corporate expenses before unusual items for the second quarter were $2.2 million, compared with $1.2 million a year ago. The increase was primarily the result of costs related to our pending acquisition of assets from Pillsbury and General Mills. In the second quarter of fiscal 2002, we recognized an unusual charge of $0.3 million for termination benefits for 57 former hourly employees of our divested U.S. flour milling business. As part of the sale agreement, we are obligated to provide, under certain conditions, severance payments for eligible former employees who are involuntarily terminated by the buyer. Non-operating Expense and Income Second quarter net interest expense increased to $3.6 million, compared with $3.3 million a year ago. The increase in net interest expense was due to higher average debt balances, which resulted from increased working capital levels and capital expenditures. The increase was partially offset by lower average borrowing rates on our variable rate debt obligations. Income Taxes In the second quarter last year, we recognized income tax expense of $3.1 million associated with a dividend from our Canadian subsidiary. Our effective tax rate before the impact of the Canadian dividend and unusual items was 38% in the first six months of fiscal 2002 and 2001. FINANCIAL CONDITION Our short-term financing is provided by borrowings against our U.S. and Canadian revolving credit agreements and an uncommitted line of credit. Our committed revolving credit agreements totaled $255 million, of which $61 million was available at September 1, 2001. We also had an uncommitted line of credit of $10 million that was fully utilized at September 1, 2001. As a result of timing of supplier payments and customer receipts and seasonal working capital requirements, we will at times utilize most of our available capacity under these credit agreements. In addition, we have a medium-term note program under our shelf registration statement filed with the Securities and Exchange Commission that provides for the issuance of up to $150 million in medium-term notes in various amounts and maturities. As of September 1, 2001, $140 million was available under the medium-term note program. In May 2001, Standard and Poor's lowered our corporate credit rating and the rating on our existing medium-term note program to "BB" and "BB+", respectively, as a result of the increased debt leverage we will incur from our pending acquisition of assets from Pillsbury and General Mills. In addition, Standard and Poor's assigned a "BB+" bank loan rating to our proposed $450 million senior secured bank facility and a "B+" rating to our proposed $200 million senior unsecured notes. Also in May 2001, Moody's Investors Service (Moody's) assigned a "(P)Ba2" rating and a "(P)B1" rating to the proposed $450 million senior secured bank facility and the proposed $200 million senior unsecured notes, respectively. In addition, the "Baa3" unsecured ratings on our medium-term notes are under review by Moody's for possible downgrade. Our debt-to-total-capitalization ratio increased to 48.6% at September 1, 2001 compared with 42.1% at March 3, 2001. The increase in the debt-to-total-capitalization ratio was primarily the result of increased working capital usage and capital expenditures. Cash used for operations was $50 million for the first six months of fiscal 2002 compared with $3.8 million for the first six months of fiscal 2001. The change was primarily due to increased working capital usage. Accounts receivables and inventories increased due to additional sales volumes. Accounts payable declined due to timing of payments to suppliers. Cash used for investing activities was $12 million for the first six months of fiscal 2002 compared with $3.5 million for the first six months of fiscal 2001. Activities in the first six months of fiscal 2002 primarily consist of capital expenditures, which included amounts for the expansion of our condiments operation in Dunnville, Ontario. The first six months of fiscal 2001 included $12 million received from the sale of our corporate headquarters building and capital expenditures of $16.6 million. Capital expenditures in fiscal 2001 included amounts for facility expansion and consolidation projects at Multifoods Distribution Group. PENDING ACQUISITION On February 4, 2001, we entered into an asset purchase and sale agreement with The Pillsbury Company and General Mills, Inc. to acquire Pillsbury's desserts and specialty products business, Pillsbury's non-custom foodservice baking mix business and General Mills' Robin Hood business for approximately $304.6 million in cash. The assets being acquired include certain equipment and inventory of the Pillsbury businesses, inventory of the General Mills' Robin Hood business, and certain trademarks and trademark licenses. The acquisition is subject to a number of conditions, including provisional consent by the Federal Trade Commission (FTC) of the acquisition and completion of the merger of General Mills and Pillsbury. The FTC continues to review the proposed General Mills/Pillsbury merger and our pending acquisition. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 141 (SFAS 141), "Business Combinations." SFAS 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. In addition, intangible assets acquired are only recognized and accounted for separately from goodwill if they arise from either contractual or other legal rights or are capable of being separated. In July 2001, FASB also issued Statement of Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other Intangible Assets." Under the provisions of SFAS 142, goodwill and other intangible assets that have indefinite lives will no longer be amortized, but subjected to impairment testing. Goodwill amortization expense in fiscal 2001 was $2.6 million pretax, $1.7 million after tax. SFAS 142 is effective for the Company in the first quarter of fiscal 2003. However, any goodwill and any intangible assets determined to have an indefinite life that are acquired in a business combination completed after June 30, 2001 will not be amortized. The Company is currently evaluating the impact of the standard and may be required to recognize an impairment loss associated with its Multifoods Distribution Group business upon adoption of the standard. As of September 1, 2001, the unamortized goodwill balance of the Multifoods Distribution Group business was $66.2 million. Additional discussion on new accounting pronouncements is included in Note 3 to the consolidated condensed financial statements. CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may from time-to-time make written and oral forward-looking statements. These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning our operations and financial performance and condition. For this purpose, statements that are not statements of historical fact may be deemed to be forward-looking statements. We caution that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including, among others, the consummation of the proposed acquisition and the timing of the close; costs associated with the acquisition should it fail to close; actions in the financial markets; regulatory approval related to the pending acquisition; integration problems associated with the pending acquisition; the results of our review of strategic alternatives for our Multifoods Distribution Group; the impact of competitive products and pricing; market or weather conditions that may affect the costs of grain, cheese, other raw materials, fuel and labor; changes in laws and regulations; fluctuations in interest rates; the inability to collect on a $6 million insurance claim related to the theft of product in St. Petersburg, Russia; fluctuations in foreign exchange rates; risks commonly encountered in international trade; and other factors as may be discussed in our reports filed with the Securities and Exchange Commission. PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The 2001 Annual Meeting of Stockholders of International Multifoods Corporation (the "Company") was held on July 2, 2001 (the "Annual Meeting"). Holders of the Company's common stock, par value $.10 per share, of record on May 10, 2001, were entitled to one vote per share. (c) Claire L. Arnold was elected a director for a term of one year at the Annual Meeting and Lois D. Rice and Dolph W. von Arx were elected directors for a term of three years. The number of votes cast for the election of each director and the number of votes withheld are as follows: FOR WITHHELD --- -------- Claire L. Arnold 15,172,222 1,498,775 Lois D. Rice 15,153,093 1,517,904 Dolph W. von Arx 15,172,036 1,498,961 The other directors whose terms of office as directors continued after the meeting were Gary E. Costley, Nicholas L. Reding, Jack D. Rehm and Richard K. Smucker. With respect to the proposal to approve amendments to the 1997 Stock-Based Incentive Plan of International Multifoods Corporation, there were 11,510,893 votes cast for the proposal, 3,492,905 votes cast against the proposal and 23,481 abstentions. There were 1,428,718 broker nonvotes with respect to such matter. With respect to the proposal to approve the appointment of KPMG LLP as independent auditors of the Company for the fiscal year ending March 2, 2002, there were 16,551,491 votes cast for the proposal, 79,331 votes cast against the proposal and 40,175 abstentions. There were no broker nonvotes with respect to such matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.1 Second Amendment to Asset Purchase and Sale Agreement by and among General Mills, Inc., The Pillsbury Company (together, the Sellers) and International Multifoods Corporation (the Buyer) dated as of July 30, 2001. 11. Computation of Earnings Per Common Share. 12. Computation of Ratio of Earnings to Fixed Charges. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended September 1, 2001. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERNATIONAL MULTIFOODS CORPORATION Date: October 15, 2001 /s/ John E. Byom ----------------------------------------- John E. Byom Vice President - Finance and Chief Financial Officer (PRINCIPAL FINANCIAL OFFICER AND DULY AUTHORIZED OFFICER) EXHIBIT INDEX 2.1 Second Amendment to Asset Purchase and Sale Agreement by and among General Mills, Inc., The Pillsbury Company (together, the Sellers) and International Multifoods Corporation (the Buyer) dated as of July 30, 2001. 11. Computation of Earnings Per Common Share. 12. Computation of Ratio of Earnings to Fixed Charges. EX-2.1 3 a2061006zex-2_1.txt EXHIBIT 2.1 EXHIBIT 2.1 SECOND AMENDMENT TO ASSET PURCHASE AND SALE AGREEMENT THIS SECOND AMENDMENT TO THE ASSET PURCHASE AND SALE AGREEMENT (this "Second Amendment") is made as of July 30, 2001 by and among General Mills, Inc., a Delaware corporation ("General Mills"), The Pillsbury Company, a Delaware corporation ("Pillsbury" and, together with General Mills, the "Sellers" and each, a "Seller"), and International Multifoods Corporation, a Delaware corporation ("Buyer"). Unless otherwise specified, capitalized terms herein shall have the meaning ascribed to them in the First Amended Asset Sale Agreement (as herein defined). WITNESSETH: WHEREAS, Sellers and Buyer are the parties to that certain Asset Purchase and Sale Agreement, dated as of February 4, 2001 (the "Original Asset Sale Agreement"); WHEREAS, Sellers and Buyer are the parties to that certain First Amendment to the Original Asset Sale Agreement, dated as of April 26, 2001 (the "First Amendment"); WHEREAS, the Original Asset Sale Agreement as amended by the First Amendment shall hereinafter be referred to as the "First Amended Asset Sale Agreement"; and WHEREAS, the parties to the First Amended Asset Sale Agreement desire to amend the First Amended Asset Sale Agreement as set forth in this Second Amendment; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained in this Second Amendment, and intending to be legally bound hereby, the parties hereto agree as follows: 1. AMENDMENT OF TERMINATION PROVISIONS. Section 10.1(e) of the First Amended Asset Sale Agreement is hereby replaced in its entirety with the following: "(e) by either Seller or Buyer if the Closing does not occur on or prior to September 28, 2001;" 2. COUNTERPARTS; EFFECTIVENESS. This Second Amendment and any amendments hereto may be executed by facsimile and in one or more counterparts, all of which shall be considered one and the same agreement. Except as expressly amended hereby, the terms and conditions of the First Amended Asset Sale Agreement shall remain in full force and effect. The First Amended Asset Sale Agreement, as amended by this Second Amendment, shall be binding upon the parties hereto and their successors and permitted assigns. This Second Amendment shall be effective as of the date first written above. 3. GOVERNING LAW; JURISDICTION AND FORUM; WAIVER OF JURY TRIAL. (a) This Second Amendment shall be governed by and construed in accordance with the laws of the State of Minnesota applicable to agreements made and to be performed entirely within such State, without regard to the choice of law principles thereof. (b) Sellers and Buyer hereby irrevocably consent to the exclusive jurisdiction and venue of the Courts of the State of Minnesota and the United States District Court for the District of Minnesota, in connection with any action or proceeding arising out of or relating to this Second Amendment. Buyer hereby irrevocably appoints Buyer's General Counsel as its authorized agent upon whom process may be served in any such action or proceeding instituted in any such court and waives any objections to personal jurisdiction with respect thereto. Sellers hereby irrevocably appoint General Mills' General Counsel as their authorized agent (PROVIDED that until the Acquisition is consummated, Pillsbury appoints its General Counsel as its authorized agent) upon whom process may be served in any such action or proceeding instituted in any such court and waives any objections to personal jurisdiction with respect thereto. 4. HEADINGS; DEFINITIONS. The section and article headings contained in this Second Amendment are inserted for convenience of reference only and will not affect the meaning or interpretation of this Second Amendment. All capitalized terms defined herein are equally applicable to both the singular and plural forms of such terms. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed and delivered as of the date first written above. GENERAL MILLS, INC. By: /s/ D.I. Malina -------------------------------------------- Name: Daniel I. Malina Title: Vice President, Corporate Development THE PILLSBURY COMPANY By: /s/ David E. Schmitt -------------------------------------------- Name: David E. Schmitt Title: Vice President and General Counsel INTERNATIONAL MULTIFOODS CORPORATION By: /s/ Gary E. Costley -------------------------------------------- Name: Gary E. Costley Title: Chairman of the Board, President and Chief Executive Officer EX-11 4 a2061006zex-11.txt EXHIBIT 11 EXHIBIT 11 INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Computation of Earnings per Common Share (unaudited) (in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED -------------------- -------------------- Sept. 1, Aug. 26, Sept. 1, Aug. 26, 2001 2000 2001 2000 --------------------------------------------------------------------------------- Average shares of common stock outstanding 18,816 18,740 18,789 18,738 Dilutive potential common shares 245 144 228 83 --------------------------------------------------------------------------------- Total adjusted average shares 19,061 18,884 19,017 18,821 ================================================================================= Net earnings applicable to common stock $ 2,794 $ 5,279 $ 4,880 $10,029 ================================================================================= Earnings per share of common stock: Basic $ .15 $ .28 $ .26 $ .54 ================================================================================= Diluted $ .15 $ .28 $ .26 $ .53 =================================================================================
Basic earnings share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed similar to basic earnings per share except that the weighted average shares outstanding are increased to include additional shares from the assumed exercise of stock options, if dilutive. The number of additional shares is calculated by assuming that outstanding stock options were exercised and the proceeds from such exercises were used to acquire shares of common stock at the average market price during the period. EX-12 5 a2061006zex-12.txt EXHIBIT 12 EXHIBIT 12 INTERNATIONAL MULTIFOODS CORPORATION AND SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges (unaudited) (in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ------------------ Sept. 1, Aug. 26, Sept. 1, Aug. 26, 2001 2000 2001 2000 ------------------------------------------------------------------------------- Earnings before income taxes $ 4,506 $13,458 $ 7,871 $21,119 Plus: Fixed charges (1) 6,696 6,554 13,332 12,915 Less: capitalized interest (100) (111) (254) (342) ------------------------------------------------------------------------------- Earnings available to cover fixed charges $11,102 $19,901 $20,949 $33,692 =============================================================================== Ratio of earnings to fixed charges 1.66 3.04 1.57 2.61 ===============================================================================
(1) Fixed charges consisted of the following:
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ------------------- Sept. 1, Aug. 26, Sept. 1, Aug. 26, 2001 2000 2001 2000 ------------------------------------------------------------------------------- Interest expense, gross $4,131 $4,468 $ 8,290 $ 8,675 Rentals (Interest factor) 2,565 2,086 5,042 4,240 ------------------------------------------------------------------------------- Total fixed charges $6,696 $6,554 $13,332 $12,915 ===============================================================================